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Centro board not told of error

Leonie Wood

Centro's manager of accounting did not raise the problem of a mistake in statements. Photo: Rob Homer

THE senior manager in charge of Centro's accounting department has admitted he took no steps to investigate how a major error emerged in the group's 2006-07 financial statements despite telling a court he was shocked when he learnt of the mistake.

Paul Belcher, who was an accountant at PricewaterhouseCoopers before joining Centro in November 2006, told the Federal Court yesterday that he was certain the error was not mentioned during a meeting of Centro's board audit committee in September 2007 when the final version of the accounts were to be reviewed before approval.

Centro wrongly classified billions of dollars of short-term debt as long-term in its 2006-07 accounts. The full extent of the mistake only emerged in late 2007 after Centro conceded it was having difficulty refinancing some of its debt.

The Federal Court in Melbourne is hearing a multi-party class action initiated by Centro investors, who are suing the company and its former auditors, PricewaterhouseCoopers, over the catastrophic collapse in the group's share price in late 2007.

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As the head of Centro's accounting team, Mr Belcher was a key liaison between the company and its auditors. The court has heard that after Centro published its preliminary accounts in August 2007, and before it released its final accounts in September, members of the PwC audit team pointed out to Mr Belcher that Centro's $US1.1 billion bridging loan facility from JPMorgan should have been classed as a short-term debt.

Documents seen by the court yesterday indicate that PwC auditors knew about the debt error from at least August 14, 2007, and that in the next few weeks PwC staff and Mr Belcher had some discussions about how to deal with the mistake and how to disclose or adjust it in the accounts.

The court heard that according to an affidavit filed by Stephen Cougle, PwC's partner in charge of the Centro audit, he told Mr Belcher on August 28: ''Look, Belch. This JPMorgan bridge facility should be current … it needs to be adjusted to reflect the correct classification.''

According to Mr Cougle, Mr Belcher replied: ''Yes, I agree … I'll make the adjustment.'' But Mr Belcher told the court he did not recall having any discussion of the error with Mr Cougle.

Asked repeatedly by Cameron Moore, SC, for PwC what steps he took to determine how the error emerged, Mr Belcher initially said he was ''comfortable'' that the auditors had been through the accounts, but ultimately he admitted he did nothing to investigate it. ''I just made the correction,'' he said.

The court also heard that during a formal interview with Australian Securities and Investments Commission investigators, Mr Belcher said ''certainly the intention would have been to raise it [the error]'' with the board audit committee when they met in the first week of September.

But he said that as far as he could recall, it was not mentioned to directors. The court heard Mr Belcher told ASIC investigators that he and Centro's former chief financial officer, Romano Nenna, ''were surprised when we subsequently [in January 2008] went back and looked at the minutes [of the September meeting] and found that we did not'' raise the problem of the mistake.

Justice Michelle Gordon has repeatedly urged the parties to keep to strict timetables in the case, which has already run for a month. According to one source, the case, which involves up to 50 barristers and lawyers, may be costing as much as $1000 a minute, or at least $1.2 million a week.